The Age of AI and Our Human Future — a technological triple threat

Three respected authors — Henry Kissinger, Eric Schmidt and Daniel Huttenlocher — argue artificial intelligence is our biggest foe yet

John Thornhill 

Armed police wear mixed-reality headsets during a training exercise in China © Hou Chonghui/VCG via Getty Images


When the theoretical physicist Robert Oppenheimer witnessed the first nuclear weapons test in the New Mexico desert in 1945, he famously invoked a line from the Hindu scripture the Bhagavad Gita: “Now I am become Death, the destroyer of worlds.”

The wartime head of the Los Alamos Laboratory, known as the “father of the atomic bomb”, had no doubt about the significance and impact of the weapon he had helped develop. 

After the bombing of Hiroshima and Nagasaki a few weeks later, everyone else on the planet also understood that humanity had entered a new, and terrifying, age.

According to the authors of The Age of AI, humanity stands on the brink of an equally consequential moment, yet one that is more diverse, diffuse and unpredictable and less widely acknowledged. 

The increasing power of artificial intelligence, a general purpose technology that can be put to an astonishing array of civil and military uses — from reading X-rays and predicting weather patterns to empowering killer robots and spreading disinformation — is already scrambling centuries-old conceptions of national security and state sovereignty. 

Equally unnerving, the authors contend, is that AI will also test the outer limits of human reason and understanding and challenge the very nature of human identity and agency.

It may be tempting to dismiss such arguments as the wild-eyed hyperbole that envelops so much of the debate about AI. 

But the three authors of The Age of AI have strong claims to be taken seriously. 

The veteran diplomat Henry Kissinger knows a thing or two about strategy. 

As the former chief executive of Google, Eric Schmidt understands how the giant technology companies deploy AI in the real world.

And Daniel Huttenlocher, the inaugural dean of MIT’s Schwarzman College of Computing, is well versed in the latest cutting-edge AI research. 

What is most unsettling about the book is that even such acknowledged experts are far more adept at raising uncomfortable questions than providing comforting answers.

To explain the likely impact of AI in the future, the authors examine our technological past. 

In previous eras, the most powerful strategic technologies tended to have two of three characteristics, but none had all three.

The railways that carried troops to the front lines in the first world war had both civilian and military uses and could spread easily and widely, but were not threatening in themselves. 

The nuclear technology that defined the cold war could also be used for both warlike and peaceful purposes and had massive destructive force, but could not be spread easily and widely.

But AI, the authors argue, breaks that paradigm because it exhibits all three features. 

AI is clearly dual use, it can be easily developed and deployed (being in essence no more than lines of computer code) and has enormous destructive power. 

“Few eras have faced a strategic and technological challenge so complex and with so little consensus about either the nature of the challenge or even the vocabulary necessary for discussing it,” the authors write.

Or, as Elon Musk summarised the argument in 2014 in a pithy tweet: “We need to be super careful with AI. 

Potentially more dangerous than nukes.”

One of the drawbacks of The Age of AI is that it reads more like a series of monologues by the authors on their pet subjects rather than an engaging dialogue that could have truly elevated the debate. 

The most interesting chapter, on security and world order, was presumably written by Kissinger. 

It should be read by anyone trying to make sense of geopolitics today.

AI holds the prospect of augmenting conventional, nuclear and cyber capabilities in ways that make security relationships among rivals more challenging

The eternal goal of military strategists has been to project power across ever bigger distances with progressively greater force and speed. 

But the great powers of the day that developed such technologies did so more or less in lockstep and in the plain light of day. 

Although the US had a jump on the Soviet Union in developing the atomic bomb, other powers quickly caught up and could more or less count each other’s missile stockpile.

But more dynamic and surreptitious military technologies, such as cyber weapons, have recently multiplied and grown more destructive, while strategies for using them for defined aims have become more elusive. 

Just as ill-designed trading algorithms have been blamed for destabilising financial markets, so AI-enhanced cyber weapons could result in a strategic “flash crash”. 

As the authors write: “AI holds the prospect of augmenting conventional, nuclear and cyber capabilities in ways that make security relationships among rivals more challenging to predict and maintain and conflicts more difficult to limit.”

Although Kissinger is considered one of the leading US authorities on China and Schmidt chaired the recent US National Security Commission report on AI that warned of China’s growing technological muscle, the book does not provide as much insight into Beijing’s ambitions as the reader might expect. 

But the authors urge the US and China to speak to one another directly and regularly about their cyber doctrines and red lines and not to cede too much agency to automated decision-making systems. 

At the very least, Washington and Beijing should ensure that human decision makers remain “in the loop” to maximise the time for dialogue and diplomacy during extreme situations and work together to prevent the dangerous proliferation of military AI.

The remaining chapters in the book are interesting enough but scarcely stake out new ground. 

In Rule of the Robots, Martin Ford does a better job of describing the likely economic impact of AI. 

In Atlas of AI, Kate Crawford is more original in exploring the technology’s broader societal, political and environmental context.

But The Age of AI does pose two big mind-bending questions about AI that will resonate for decades to come. 

When a human-designed software program, such as Google DeepMind’s games-playing AlphaZero, learns and applies a model that no human can recognise or understand, does that advance knowledge? 

Or, for the first time in human history, does that mean that knowledge is receding from us?


The Age of AI and Our Human Future by Henry Kissinger, Eric Schmidt and Daniel Huttenlocher Little Brown, $30/John Murray, £20, 272 pages

John Thornhill is the FT’s innovation editor

Turkey’s Rate Debacle Is a Warning for Emerging-Markets Investors

President Erdogan’s experiments show why central banks in developing nations can’t just copy their Western peers

By Jon Sindreu


When central banks in the West behave chaotically, those in developing countries have even less room to mess around. Turkey doesn’t seem to have gotten the memo.

On Thursday, the Turkish lira fell 2% against the U.S. dollar after Turkey’s central bank lowered interest rates for a third time in a row. 

The lira has plummeted 30% since the start of the year, losing all the stability gained under the tenure of the previous central-bank governor, who was succeeded in March.

Although many on Wall Street expected emerging-markets stocks to be big beneficiaries of the pandemic recovery, they have returned a paltry 4% this year. 

Emerging-markets currencies have been under severe pressure from Covid-19 variants, a surge in inflation and expectations of higher rates in rich nations. 

Yet the lira is by far the worst performer, and it is mostly about monetary policy.

While Turkey is understandably wary of increasing borrowing costs as growth flounders, most developing economies have had to bite the bullet—as the South African Reserve Bank did Thursday. 

By contrast, Turkish President Recep Tayyip Erdogan insists he will keep lowering them as he “writes the book on the economy.”


Some of the past decade’s monetary experiments, such as quantitative easing, have translated well to developing countries. 

Often, though, borrowing from the rich-country playbook can be a costly mistake.

Of late, the Federal Reserve and the Bank of England have been inconsistent regarding whether they will aggressively raise rates. 

Markets periodically have priced in that they will start doing so, but then have to stop or even reverse course. 

Part of the confusion stems from how poorly textbook theories that linked interest rates to unemployment and inflation have fared. Since today’s inflation is mostly about pandemic-induced shortages, there is even more reason to believe rates can stay low as growth accelerates.

None of this applies to poorer nations: Their exchange rates are so volatile that currency depreciations can destroy living standards and fuel a self-sustaining inflationary surge, regardless of what started it. 

It is essential to have a credible monetary policy that can raise rates to prevent hot foreign money from fleeing. 

Capital controls can be useful, but they also need to be implemented coherently. 

All of this gets even harder when the top central banks in rich nations are making U-turns.

Turkey illustrates the problem: A weak currency has helped exports grow at a faster clip than imports and thus swing the current-account balance to a surplus. 

Yet inflation is so high—20%, compared with the current 15% interest rate—that big gains in competitiveness are no longer being achieved in real terms, data by the Bank for International Settlements suggests. 

And while Turkish firms have mostly stopped borrowing in dollars, steep depreciations mean that the outstanding net foreign debt burden isn’t getting smaller. Inflation then fuels more depreciation, and so on.

Foreign-currency reserves could stop the spiral, and they appear to have been replenished. 

It is a mirage, however, because most of those reserves represent borrowed money. 

Without swaps and forward contracts, the country’s war chest is a negative $50 billion.

The first lesson for investors is that trying to call a bottom on the lira is probably futile. 

The second is that even in other emerging nations, the current period of central-bank indecision makes for a perilous market.

The Fight for Taiwan Could Come Soon

Beijing may think it has an opening to seize the island before the West’s military investments pay off.

By Elbridge Colby

ILLUSTRATION: DAVID KLEIN


The U.S. and China are engaged in a “strategic competition,” as the Biden administration has put it, with Taiwan emerging as the focal point. 

But an ascendant view inside the administration seems to be that while China represents a serious economic, political and technological challenge to American interests, it doesn’t pose a direct military threat. 

This is a very imprudent assumption that could lead to war and, ultimately, American defeat. 

To avoid that disastrous outcome, the U.S. must recognize that China is a military threat—and conflict could come soon.

What makes China an urgent military threat? 

First, Beijing has made clear it is willing to use force to take Taiwan. 

Subordinating the island isn’t only about incorporating a putative lost province—it would be a vital step toward establishing Chinese hegemony in Asia. 

And this isn’t mere talk. 

The Chinese military has rehearsed amphibious attacks, and commercial satellite imagery shows that China practices large-scale attacks on U.S. forces in the region.

Second, China doesn’t merely have the will to invade Taiwan, it increasingly may have the ability to pull it off. 

China has spent 25 years building a modern military in large part to bring Taiwan to heel. 

China now has the largest navy in the world and an enormous and advanced air force, missile arsenal and network of satellites. 

This isn’t to say China could manage a successful invasion of Taiwan tomorrow—but Beijing could be very close. 

It will be “fully able” to invade by 2025, Taiwan’s defense minister said recently. China’s military power is improving every month.

Third, China may think its window of opportunity is closing. 

Many wars have started because one side thought it had a time-limited opening to exploit. 

Certainly this was a principal factor in the outbreaks of the two world wars. 

Beijing may reasonably judge this to be the case today.

The U.S. is finally, if too slowly and fitfully, waking up to the China challenge and reorienting its military efforts toward Asia. 

But these investments won’t really start to pay off until later this decade. 

Meanwhile, coalitions like the Quad (the U.S., Australia, Japan and India) are coalescing to deny China the ability to dominate the region. 

From Beijing’s view, if it waits too long, America’s military investments will yield a much more formidable opponent, while an international coalition works to frustrate Chinese ambitions.

This all adds up to a situation in which Beijing may reckon it would be better to use force sooner rather than later. 

To avoid a conflict, and possible defeat, the U.S. must act quickly to deter Beijing. 

Repeatedly declaring our “rock solid” commitment to Taiwan is fine but insufficient.

The most urgent priority: Taiwan must radically upgrade its defenses. 

The island’s own efforts in this regard will decide whether it survives as a free society. 

Taipei must multiply its defense budget, grossly neglected in recent decades, and focus its expenditures and efforts on two things: degrading a Chinese invasion with the help of the U.S. and making the island resilient to a blockade and bombardment by Beijing. 

This will require antiship missiles, sea mines and air defenses, as well as stockpiles of supplies to ride out a blockade. 

The U.S. will need to use every lever to prod or force Taipei to make this shift.

Washington should also bring comparable pressure on Japan, America’s single most important ally. 

If Taiwan falls, Japan will be under direct military threat from Beijing. 

And Japan would play a critical role in any defense of Taiwan. Japan should at least double its defense budget (now merely 1% of gross domestic product) immediately.

Meanwhile, the U.S. needs to strengthen its military position west of the international date line. 

A potent forward-deployed force of Marines, submarines and other survivable forces would ensure America and its allies could blunt any attack against Taiwan. 

The U.S. must buy and rapidly field systems like antiship missiles and unmanned reconnaissance platforms that would be essential to defeating a Chinese invasion.

Averting war against a superpower will require being ruthless about American priorities, though. 

Holding the line in Asia will mean the U.S. military will have to stop doing almost everything else other than nuclear deterrence and counterterrorism. 

The U.S. military will have to scale down in the Middle East, Africa, Latin America and even Europe. 

America had a chance to make a more evolutionary and balanced shift to Asia, but we blew it. 

Now we need to focus, even if it means the military must effectively drop everything else.

China will surely pose a long-term challenge to the U.S. in areas outside the realm of military power. 

But the most pressing risk is that Beijing may see an advantage in resorting to war. 

Convincing Beijing it won’t gain from aggression must be the overriding priority.


Mr. Colby is a principal at the Marathon Initiative and author of “The Strategy of Denial: American Defense in an Age of Great Power Conflict.” He served as deputy assistant secretary of defense for strategy and force development, 2017-18. 

Who's Afraid of the Big Bad Fed? Gold Shouldn't Be

by Adrian Day

gold skyrockets.jpg


To say that the Federal Reserve, as well as other major central banks, have been acting like drunken sailors in recent years is an insult to the inebriated seamen. }

The huge increases in global liquidity have been driving markets. 

Stocks, real estate, bitcoin, bonds (of course), and even strange concoctions called NFTs have all benefitted from the massive increase in the money supply. 

The exception of late appears to be gold—the asset one would have expected to be the prime beneficiary.

Why has gold not responded more?

Gold investors are asking why gold is not higher given the unprecedented money printing and rising inflation, as well as when that might change.

Certainly, if we go back to when the new age of money printing began, after the 2008 credit crisis (when gold was at $718), or just look at the period since the COVID-induced money mania (with gold at $1,471), we can say that gold has, in fact, responded. 

But certainly, in recent months, it has frustrated gold investors and is down nearly 8% so far this year, even as the money printing continues and inflation has entered the public consciousness. 

Why is this?

To some extent, gold has simply been in a long consolidation after the extraordinary move early last year, when gold jumped over 30% from its end-March low to early-August high (the gold stocks more than doubled).  

That kind of move—in only four months—is extraordinary for an asset that is intended as a hedge and insurance. 

Gold is not supposed to do that. 

Bitcoin or Tesla perhaps, but not gold! Since then, it has been a long consolidation, as month-by-month more and more people give up, while potential buyers feel there is no rush to invest.

Gold always has deep mid-cycle corrections

This year’s performance has been disheartening, but we should put it in context: Gold was up 25% last year, so the pullback is less than one-third of the previous year’s move up. 

The current gold bull market started at the end of 2015 when gold hit $1,051. 

So gold is up 70% in six years. 

Sometimes, I think we expect too much from gold and are never satisfied.

Gold cycles, both up and down, tend to be long. 

The shortest has been the last two—in the 1970s and from 2001 to 2011. 

Also, it is not unusual for gold to have mid-cycle corrections, often caused by an extraneous shock. 

In the 1970s, gold dropped over 40% in a correction lasting 20 months. 

In 2008’s credit crisis, it fell nearly 30% in eight months. 

So far, this pullback has taken 15% off gold’s peak price—a piker by historical standards—and has lasted just 13 months—well within norms for mid-cycle corrections. 

I would suggest that gold bottomed in March at $1,685, meaning the correction lasted less than seven months.

Strength in the dollar and stock market is an anchor on gold

There have been fundamental factors holding back gold, and three are the most important. 

One is the dollar, which has moved up over the past several months as the "cleanest shirt in the laundry basket." 

However, as low as U.S. interest rates might be, they remain meaningfully higher than those offered by other major world currencies.

The second factor is that the stock market and other assets—including cryptocurrencies—have been doing well. 

As long as the stock market moves up, investors believe that gold investments can wait.

The third major factor holding back gold is the Federal Reserve’s constant threat to start tapering. 

The Fed has a history of talking more than doing and, for reasons beyond me, still has credibility. 

It is not only gold that has not responded to money printing and inflation, but other assets all seem to be buying the Fed’s narrative. 

Of course, tighter monetary policy, other things being equal, is a negative for gold. 

But should we be so worried?

The Fed’s bark is worse than its bite

The Fed has been talking about tapering for months now, but it has constantly been pushing back on actually doing anything. 

The story changes day by day, but two things are clear. 

First, they will have to cut back on new purchases at some point; and second, they are extremely hesitant to actually do anything meaningful. 

Even after FedHead Jerome Powell said last month after the Fed’s last meeting that they would commence tapering in December—itself a postponement of previous expectations—he has started walking it back, talking of "supply-side constraints holding back the economy…not getting better…the outlook is highly uncertain." 

That does not sound like a Fed chairman determined to start the tapering process soon (and one fighting for re-nomination). 

Powell talks about supply-side constraints, but if he is looking for a reason (or excuse) to postpone tapering again, there is no shortage of those: the looming "ESG recession" in Europe; the pending Evergrande default in China; another (unexpected?) jump in new unemployment claims, as well as an economy losing some steam rapidly.

The Fed also fired (allowed to retire) two regional Fed chairmen caught conducting personal trades. By coincidence (?), these were the two most hawkish—or rather "least dovish"—of Fed officials and can now be replaced by accommodative Biden appointees.

Let’s be clear about a couple of things. 

First, tapering is only reducing the pace of new purchases; it is not selling anything. 

So the Fed’s balance sheet, which has continued to grow at an accelerating pace the last couple of months (24% in the last three months compared with 19% in the last 12 months), even as they discuss tapering, will still be larger a year from now than it is today. 

Second, as Powell himself made very clear in his Jackson Hole speech at the end of August, the Fed is separating tapering from raising interest rates. 

The Fed won’t be raising rates any time soon.

It is going to be a while—at least 2023, I think—before the Fed increases rates, and even then, it will lag behind inflation.  

The Fed under Powell emphasizes data, and by its nature, this is backward-looking. 

This is in addition to the extreme reluctance of the Fed to upset the apple cart. 

This is why Fed jawboning has more effect than action. 

The Fed threatening tightening makes investors nervous. 

Any cut back is, per se, a negative for the bond market, but not so for gold. 

Once they actually start tightening, the market sees that what the Fed is doing is never sufficient and rises.

The fact is that, many times in the past, gold has moved down in advance of Federal Reserve tightening, responding to growing talk, only to bottom and turn when it actually started to tighten. 

Gold acts this way because, all too often, when the Fed does actually start to act, it is too little too late.

Tightening for Gold.png

 

The Fed started raising rates in August 2005, tapering in December 2013, and raising rates again in December 2015, each time after months of discussion. 

Gold bottomed in the same month each tightening action started. 

In May 2013, when the Fed started talking about tapering, gold slid for several months, only to bottom almost to the day that the Fed started reducing its new asset purchases. 

It rose over 16% in the next three months, and the stocks jumped by 32%. 

This was in the context of an ongoing bear market for gold.

The gold stocks are extraordinarily undervalued

If bullion has disappointed gold holders, then that story is all the more true for gold stocks. 

The major miners (per the XAU) more than doubled in the end-March to early-August period last year, so they too have experienced a long consolidation. 

Why should generalist investors be in any rush to buy gold stocks when they lost money on the sector last time and everything else they own is going up?

The stocks are now extraordinarily inexpensive, with the senior and intermediate gold companies trading in the lowest 25 percentile of their historical valuations, and more or less the lowest price-to-free cash flow ever. 

Given the price of gold, the strong cash flows, the improved balance sheets (the XAU is net cash positive today), and the improved discipline among top mining companies, today’s low valuations are a gift.

We all know that gold stocks are volatile. 

But that volatility works both ways, and once gold starts to move up convincingly, then the gold stocks will respond very strongly. 

It is worth noting that flows into gold ETFs and other investment vehicles are very procyclical, so we can expect flows to increase as the gold price moves up.

The recent action has been frustratingly modest and volatile. 

However, the longer gold meanders in its current trading range, the faster and stronger the eventual move will be. 

In the meantime, gold investors can accumulate at prices that will appear very good in a few years’ time. 

They should not wait too long.